Indonesia July CPO reference price fell for the first time in 13 months after the calculated price was US$1094.15/ton or down US$129.90 from June. The decline was widely expected after global palm prices trended lower in the last 6 weeks. The reduction means the tax paid on CPO shipment will be lower by 3 notches to US$116 from US$183 in June, while the effective levy under the revised structure will be US$175 from US$255 previously. The levy is used to finance the Indonesian B30 biodiesel mandate. The levy and export tax on July CPO shipment will be US$291 compared to US$438 in June or US$147 total reduction. Similarly, RBD palm olein tax and levy will be US$187 or down by US$115.50 and CPKO lower to US$338 or a decrease of US$142. While the reduction is now formally announced, traders been pricing in the changes from 2 weeks ago, helping to depress Indonesian CPO premium to Malaysia from US$70-100 down to US$14 last week.
The revised levy rate will take effect from the 2nd of July. Indonesia revamped its levy structure after the levy and tax payable per per-ton of CPO reached a high of US$399 in May and US$438 in June or about 36% of the export price and subsequently depressed Indonesia export competitiveness. Indonesia CPO export fell 43% in the first 5 months of this year versus the same time last year, losing market share to Malaysia, mainly destined to India. Indonesia CPO export to India fell by 32% to 999,304 tons while Malaysia CPO export to India rose twelvefold to 1.165 million tons during the first 5 months of this year versus the corresponding period last year. High global palm prices underpinned by tight supply pushed global CPO prices to a record high in May and this was further inflated by hefty Indonesian levy and taxes making pure upstream players lose out on the export market.
Lobbying by plantations and mounting loss of market share together with narrowing of palm oil—gas oil (POGO) spread by 41% to US$240 in the last month led to the revision of levy structure. The narrowing of the POGO spread means the cost of financing biodiesel is relatively cheaper, placing less pressure on the funding pool, allowing for the levy to be lowered.
The changes are expected to boost Indonesian CPO exports in July as prices cool. CPO prices are down by 22% since peaking to a record high of 6 weeks ago.
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